Customers will ultimately foot bill for tracker scandal

Government unlikely to change tax rules or increase levy

Ireland's three surviving bailed-out banks at the centre of the tracker scandal – AIB, Bank of Ireland and Permanent TSB – received a combined €29 billion bailout from taxpayers during the financial crisis.

They've paid less than €350 million in tax between them over the past five years and a total of €375 million in levies to the State in the past three years, according to calculations by The Irish Times.

However, the trio have set aside €360 million to date to cover estimated costs relating to the tracker-mortgage scandal – out of a total of €573 million for the industry as a whole. That’s to cover refunds and compensation for impacted customers as well as legal and outside consultants’ fees.

Those figures are likely to rise as the Central Bank and Government press the 11 lenders caught up in the controversy to look through their books again to find further cases of overcharging in addition to 13,000 acknowledged by the industry.


The Central Bank made it clear last week that it’s at loggerheads with two unnamed lenders about swathes of borrowers the regulator believes were wrongfully denied tracker mortgages – typically after a period on fixed rates.

Quick political win

However, there's a risk that these disputed cases will be sidelined or forgotten if Minister for Finance Paschal Donohoe goes for a quick political win on Wednesday – as he concludes his meetings with the five main mortgage lenders – and declares that banks are moving ahead at pace with compensating the agreed 13,000 cases.

The Government has warned the banks – including overseas-owned Ulster Bank and KBC Bank Ireland, who also have sizeable tracker problems – that if they don't redress and compensate most of the affected customers by the end of the year, they face additional taxes or levies.

As things stand, the country’s banks are able to minimise their corporate tax bills with the help of losses racked up during the financial crisis.

AIB has €3 billion of so-called deferred tax assets, which may take over 20 years to use in full. Bank of Ireland expects that it will be able to cut its tax bill for the next 13 years using the €1.3 billion of similar tax assets it is sitting on, while Permanent TSB has a further €373 million.

However, the Government is unlikely to change tax rules and or increase the existing €150 million-a-year industry levy, which it extended last year until 2021. Such measures would disproportionately hit AIB and Permanent TSB, who stand out as having largely completed redress and compensation of affected tracker customers.

Besides, the State still has to sell its remaining 71 per cent stake in AIB and 75 per cent of Permanent TSB and any tax law changes would turn off potential investors in both.

An easier solution to force defiant banks to stop dragging their heels on the tracker crisis would be for the Central Bank and European Central Bank in Frankfurt to order them to hold more costly capital in reserve and restrict dividend payments to shareholders. This would allow regulators to target individual lenders.

There is little doubt that the final cost of the tracker scandal will be far more than the €573 million currently calculated by the banks.

But there’s no doubt about who’ll ultimately foot the bill: banks’ existing and future customers.